02103cam a22002417 4500001000600000003000500006005001700011008004100028100002200069245012200091260006600213490004100279500001900320520114400339530006101483538007201544538003601616700001801652710004201670830007601712856003701788856003601825w2080NBER20150303185605.0150303s1986 mau||||fs|||| 000 0 eng d1 aFrenkel, Jacob A.10aDeficits with Distortionary Taxesh[electronic resource]:bInternational Dimensions /cJacob A. Frenkel, Assaf Razin. aCambridge, Mass.bNational Bureau of Economic Researchc1986.1 aNBER working paper seriesvno. w2080 aNovember 1986.3 aThis paper deals with the international effects of budget deficits arising from distortionary tax and transfer policies. The analysis demonstrates that the consequences of tax policies and the characteristics of the international transmission mechanism depend critically on the precise composition of taxes. Specifically, the international effects of budget deficits of a given size differ sharply according to the types of taxes used to generate the deficit. We show that in determining the effects of taxes it is useful to divide the various distortionary taxes into two groups: those that stimulate current external borrowing (national dissaving) and those that stimulate current external lending (national saving). A pro-borrowing tax policy raises the world rate of interest while a pro-lending tax policy lowers it. The resulting change in the rate of interest is the channel through which the effects of budget deficits are transmitted to the rest of the world. The key propositions are illustrated by a series of examples involving consumption taxes (VAT), taxes on income of labor and capital and taxes on international borrowing. aHardcopy version available to institutional subscribers. aSystem requirements: Adobe [Acrobat] Reader required for PDF files. aMode of access: World Wide Web.1 aRazin, Assaf.2 aNational Bureau of Economic Research. 0aWorking Paper Series (National Bureau of Economic Research)vno. w2080.4 uhttp://www.nber.org/papers/w208041uhttp://dx.doi.org/10.3386/w2080